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For a business civilisation that is humane
March, 22nd 2007
`Corporate goodness' is the desire on the part of corporate management to operate according to an altruistic or idealistic motive.


PROFESSOR PRADIP N. KHANDWALLA, MANAGEMENT CONSULTANT AND TRAINER

Meet an unusual chartered accountant: Professor Pradip N. Khandwalla. A former director of IIM-Ahmedabad, his qualifications read: B.Com. (Hons) from Bombay University (1960), CA (1964), MBA (Wharton School, University of Pennsylvania, 1966), MSIA (1968) and Ph.D. in industrial administration (Carnegie-Mellon University, 1970). For decades, Prof Khandwalla has been working on `organisational designs that could enable business organisations to show superior financial performance'. Now a management consultant and trainer based in Ahmedabad, he continues to bring fresh thinking to the way we look at corporate governance.

Excerpts from an interview:

Your earlier books were on management excellence. But your forthcoming book is on `Management of Corporate Greatness'. What's the difference?

The last 15 years I have been increasingly concerned with the end result of corporate excellence: Does it yield benefits to all the stakeholders of the corporation or only to the owners? I have also been concerned about the kind of business civilisation that we are crafting. Is it inevitably a mercenary one, consisting mainly of WorldComs and Enrons? Or, can we have a business civilisation that is humane? What sort of a role can corporations play in developing countries such as India for raising living standards and improving the quality of life? These questions impelled me to go beyond the present paradigm of management that stresses only profit maximisation.

In 1996 I was invited to present a paper in a symposium on organisations of wisdom and courage at Case Western Reserve University in Cleveland. This gave me the impetus to think more deeply and review a large mass of the literature on business ethics, corporate social responsibility, altruism, spirituality, and so forth. But I still did not have answers to some key questions: in a hyper-competitive environment that some describe as a dog-eat-dog scenario, is it possible to be `good'?

Is it profitable to be `good'? If the answers to both the questions are emphatically `yes', then it is desirable and possible to change the paradigm of management. And if we can change the paradigm of management to one that stresses both profitability and `goodness' then we may be able to build a much more humane business civilisation in the 21st century.

`Corporate goodness... ' what's that?

By `corporate goodness' I mean the desire on the part of corporate management to operate according to an altruistic or idealistic motive. This can take many forms. The most well known forms are corporate charity, business ethics, and CSR (corporate social responsibility). CSR manifests as affirmative action, the development of the community in which the company's plant is located, environmental protection, producing what the country needs, and so forth. But there are several additional forms.

One less known `goodness' form is democratic governance in which all the major stakeholders of the corporation have a say in how the corporation operates.

Another less known form is domain development or domain empowerment, in which the corporation goes out of its way to strengthen its domain of activity, say its industry, and that includes even its competitors. In all of these forms the urge is to go beyond the mundane to something that is exalted, something that is tied to the quality of our life, to the essence of what we call civilisation.

Is there a connection between `goodness' and financial performance?

Yes, indeed. Dozens of studies in the West, especially in the US, have tried to see if there is a link between CSP (corporate social performance) and financial performance. I came across a study that reviewed the findings of sixty-odd researches. In the majority of cases there was a positive relationship. In another review study, there was generally a negative relationship between the riskiness of the company and CSP.

If CSP is associated with higher financial performance and lower risk, then corporate market valuation, which is broadly return over risk, would rise rapidly with CSP. Or, to put it differently, the price/earnings ratio would rise with increasing CSP. Other researches have shown that both customers and prospective employees prefer `good' companies to companies with a bad CSP or ethics record. So the evidence is pretty strong that `goodness' pays.

Any examples?

Yes, of course. In my book I have given over seventy examples of profitable companies that also show commitment to be `good'. Johnson and Johnson withdrew all Tylenol tablets from the market even though there was no evidence that it had contaminated the drug, and voluntarily took a hit of $100 million. Tokyo Electric Power, one of the world's largest power utilities, was so aggressive in reducing noxious emissions that it reduced sulphur dioxide and nitrogen oxide emissions to below 0.4 gm per kilowatt-hour compared to 6.5 gm of sulphur dioxide and 3.2 gm of nitrogen oxide per kilowatt-hour in the US and other Western countries. Merck gave away millions of dollars worth of a drug it had developed to fight river blindness free to Third World countries, as poor people there could not afford to pay for it. Malaysia Airlines has been trying to instil into its staff such values as impeccable character, gratefulness, trustworthiness, sincerity, and discipline through training workshops.

These are examples of relatively large companies. But I have also come across dozens of relatively small companies that have demonstrated a passion for goodness. I came across a relatively small but fast growing Chinese company that has had an enviable record of integrity and patriotism. Companies such as Body Shop in Britain, Fisher and Paykel in New Zealand, and Ben and Jerry's in the US are other examples.

Any Indian examples?

Well, everyone knows of Tata Steel's outstanding record of both financial performance and also its outstanding record of corporate social responsibility. As you know, hundreds of thousands of tribals and other poor people have benefited and continue to benefit from the company's rural development programmes. Several profitable public sector companies such as Bharat Heavy Electricals not only produce equipment and products that are vital for India's growth but also aggressively pursue environmental protection, community development, affirmative action, and even domain development.

Several companies in the Aditya Birla Group such as Grasim, Hindalco, and Indian Rayon have not only been blue chip companies but have also garnered several awards for their environmental protection actions. Infosys, known for its fine corporate governance, is also funding the setting up of thousands of libraries in the South under Sudha Murthy's leadership. Wipro is aggressively trying to transform India's school education. Satyam, Lupin, and Gujarat Ambuja Cement are heavily into community development. There are many other examples.

You have written extensively on creativity. How are `goodness' and creativity related?

Both profit maximisation and `goodness' restrict investment, strategic and operating options. A profit maximising company screens out relatively less profitable opportunities. Similarly, when it is pursuing one of the goodness paths, it filters out inappropriate options. So, when both screens are used, the choices tend to get very restricted. Creativity can help expand choice. P&G offers an excellent example. In the 1970s, it was attacked because of its polluting products. It decided to become environment-friendly. It carefully examined its raw materials, its production processes, and its products to eliminate or minimise pollutants. It put millions of dollars into R&D for this purpose. And it came up with new diapers, sanitary pads, cartons, detergents and other products that were much less damaging to the environment.

D. Murali

 
 
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